Dawn Primarolo:
The debates that we will have as we proceed through the remainder of our considerations today will be on technical and drafting amendments that the Government believe will improve the Bill by clarifying and rationalising its provisions. I shall briefly introduce the purpose of each group, and many of the amendments are consequential.

This group of amendments deals with the interaction between awards and entitlement, and includes technical changes to the provisions on recovering overpayments and paying out underpayments when entitlement turns out to be different from the amount paid under an award during the year. In addition, it makes clear that awards are not revoked by a decision of the board, but are instead terminated by such a decision.

I shall briefly explain why these technical changes are necessary. The new tax credits introduced by the Bill are designed to target support according to the current circumstances of claimants within the context of a system that bases entitlement to tax credits on annual income and can respond by adjusting support if claimants experience a change in their level of income.

As the credits are designed to ensure support is delivered to claimants during the year, the Bill enables the Inland Revenue to make awards, and payments under those awards, during the year, and to adjust those awards and payments as claimants' circumstances change. That is precisely what we intended.

However, there were some technical problemsas there often arewith the relevant provisions in the Bill as it stood. The amendments do not change the basic operation of the Bill. Awards and payments under those awards are the vehicle for delivering support during the year. Entitlement is different. I am sorry that we need to be so precise, but legislation needs to be precise in these

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circumstances. Entitlement depends on the underlying facts, some of which cannot be determined until after the end of the year. However, that distinction was not clearly drawn in the Bill as it stood, so we decided that a number of technical changes were necessary to clarify matters.

The key changes are the amendments to clauses 3 and 5. A considerable number of purely consequential amendments to later clauses were also necessary. That accounts for the bulk of the amendments in this group.

In addition, the Bill was unclear about the effect of income on awards and entitlement. As the new tax credits will respond to changes in income, entitlement cannot finally be determined until after the end of the year, when current year income is known. As the Bill stood, however, the lack of a clear distinction between awards and entitlement meant that claimants could face having their entitlement curtailed because of decisions taken by the board during the year based on expectations about income.

If the board decided not to make an award at all, in the expectation that a claimant's income would be too high for entitlement to any tax credits, that could cut across the claimant's entitlement. Awards will of course be finalised at the end of the year, once all the relevant details about income are known; but if no award was ever made there would be nothing to finalise. Someone might be entitled to receive money, albeit perhaps not very much, when his or her final income was determined according to the facts but the submission of expected income over the rest of the year had suggested no entitlement. To avoid that problem, amendments to clause 14 will allow the board to make awards at a nil rate.

The idea of someone receiving a notice telling them that their award is nil may strike some people as bizarre. However, the reason for that is that at the end of the year the assessment of entitlement against award allows for action if it is indicated that money is outstanding.

The group of amendments also contains minor drafting changes, the main change being replacement of references to the board's revoking awards with references to its terminating them. Once made, an award cannot simply disappear, which is what the reference to revoking awards might be taken to imply. If the award disappeared, it would not be possible to decide on the entitlement at the end of the year.

Provisions relating to both overpayments and underpayments are amended. That enables the board to recover overpayments before the end of the year when the person to whom the award was made never met the basic qualifying criteria for the tax credit, and also makes clear that the board is obliged to pay any extra tax credits to claimants when there have been underpayments. It was always clear in Committee that the Government intended to make such provision, but I was told that the technical definitions should be made clearer.

I am sorry that there are so many technical changes, but it was necessary to change every reference throughout the Bill to ensure that there could be no dispute about claimants' entitlements.

Mr. Flight:
We support these technical amendments, which, along with others, correct drafting errors.

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The many amendments tabled in the other place were, I think, largely tabled at the last minute. They seem to have been grouped into nine categories here, whereas there were five in the Lords. Essentially, however, they reflect a drafting muddle that occurred when the Bill went therea muddle concerning both the definitions and the operation of awards and entitlements.

Lord Higgins, who contributed a great deal to sorting out the problem, was strongly vexed. He said it would be "far more appropriate" to describe the amendments as structuring amendments, because there were

"fundamental inconsistencies . . . between the earlier and later parts of the Bill."

He said the Bill was "fundamentally flawed", and added

"Rarely in almost 40 years in both Houses have I seen such a badly drafted Billin fact I probably never have."[Official Report, House of Lords, 12 June 2002; Vol. 636, c. 266.]

6.15 pm

I must confess that it took me a long time and a lot of digging to establish the essence of the structural errors. I must also confess that in Committee I focused on the related territory rather than on specific drafting issues. The Revenue is being expected to make awards during the year, not necessarily based on adequate evidence, to check entitlement in terms of meeting all the qualifications and criteria at the end of the year, and then to recover overpayments.

I think that the mechanism remains questionable and potentially flawed. I remember making the crucial point that unless claimants completed the tax credit equivalent of a tax return at the end of the year, I could not see how the poor devils in the Revenue could easily obtain all the information they needed to confirm that the provisional awards they had made would be correct in terms of legal entitlement.

Let us consider the technical issues. The credits are designed to ensure that support is delivered to claimants during the year. The Bill enables the Revenue to make awardsand payments according to those awardsduring the year, and to adjust the awards and payments as claimants' circumstances change and are confirmed. But because the credits will also respond to changes in income, entitlement cannot be finally determined until the end of the tax year when current-year income is known.

Awards, and any payments made according to them, are simply a vehicle for the delivery of support during the year. Entitlement, however, depends on the underlying facts, some of whichthose relating to incomewill not be determined until the end of the year. That distinction was not originally clear in the Bill, and gave rise to some technical problems.

In particular, there was a contradiction between clause 5 and the decision-making provisions in clauses 14 to 16. What were then subsections (3) and (5) of clause 5 were intended to make provision regarding claimants' entitlements. When people cease to meet the basic requirements necessary for qualification for one of the credits, it is sensible for their entitlement to stop. That was the aim of clause 5(5).

As couples will be jointly entitled to the new credits, it is axiomatic that the entitlement of a coupleas a coupleshould stop if the partners break up. Similarly, the entitlement of a single person as an individual will

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stop if that person takes on a new partner. That was the aim of clause 5(3). The provisions in clause 5, however, were cast in terms of the effect on awards rather than entitlement. They implied that awards would or would not end in particular circumstances. Clauses 14 to 16 make it clear that the existence of awards depends on decisions made by the board. Thus there was a conflict. The Bill as it stood left unresolved the question of what would happen in a case in which an award ought to end under clause 5, but the board had made no decision to end it under clause 16or vice versa.

These, then, are technical amendments intended to correct the misdrafting. Clause 5, in particular, now makes clear that awards run until the end of the tax year, and end during the year only if terminated by a decision of the board.

I could bang on about the technicalities, but I think I have put on record what the technical issue was. The amendments relating to awards, entitlements, overpayments and underpayments are the key ones, although I believe that four other groups relate to those matters as well.